N SOUNDARAJAN Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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T.V.K. Natarajachandran. A.M. -
(1.) THIS is an appeal by the assessee which is directed against the order of the CIT (A) -VI, Madras dated 10-11-1987 wherein he has confirmed the valuation of shares on the basis of averaging the cost of original shares between the original shares and bonus shares in terms of the Judgment of the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd:  52 ITR 567. The assessee has taken grounds to urge that the CIT (A) erred in confirming the decision of the Assessing Officer and the capital gains returned by the assessee should have been accepted.
(2.) The assessee is a HUF and derives income from business and other sources. The assessment year involved is 1984-85 for which the accounting year ended on 31-12-1983. It held 7025 shares in M/s. Palaniandavar Mills which consists of 3513 shares originally acquired in the year 1961 at a cost of Rs. 37,252 and 3512 bonus shares allotted in the year 1969. During the accounting year, the assessee sold the entire lot of shares for Rs. 84,300 and declared the net long-term capital gains of Rs. 28,422. The stand taken by the assessee was the original shares should be valued at the cost of acquisition and the bonus shares should be valued on the principle of averaging and both cost should be taken into account for the purpose of computation of capital gains. The Assessing Officer negatived the stand taken by the assessee. According to him, the principle of averaging the cost of acquisition among original shares and the bonus shares was to be applied as held by the Supreme Court in the case of Dalmia Investment Co. Ltd. (supra). On this basis, he determined the capital gains at Rs. 47,048 as against Rs. 28,422 returned by the assessee.
On appeal, the CIT (A) concurred with the decision of the Assessing Officer by relying on the Supreme Court decision in the case of Dalmia Investment Co. Ltd. (supra) and the decision of the Madras High Court in the case of CIT v. T.V.S. & Sons Ltd.  143 ITR 644. In other words, the CIT (A) confirmed the computation of capital gains at Rs. 47,048.
(3.) AT the time of hearing, the learned counsel for the assessee filed a copy of the computation of long-term capital gains in support of the capital gains returned by the assessee. He contended that the option open to the assessee to substitute fair market value as on 1-4-1974 is a statutory prescription and therefore, the principle of averaging would not apply. He has relied on the judgment of the Supreme Court in the case of Shekhawati General Traders Ltd. v. ITO  82 ITR 788 wherein it has been held by the Supreme Court that for the ascertainment of the fair market value of the shares in question on January 1, 1954, any issue of bonus shares subsequent to that date was wholly extraneous and irrelevant and could not be taken into consideration.;
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